What goes into a car payment
The sticker price is only the start. The amount you finance is the price, plus sales tax and fees if you roll them in, minus your down payment and trade-in, plus anything you still owe on the trade-in. The calculator then applies the standard amortization formula to that amount, the APR and the number of months.
Amount financed = price − down payment − trade-in + loan payoff on trade-in + tax + fees
How the trade-in affects sales tax
Most US states charge sales tax only on the difference between the new car's price and your trade-in's value, which can save hundreds of dollars. A handful of states tax the full price regardless of the trade-in. Untick the first box if that applies to you. Local taxes may add to the state rate, so use the combined rate for your address. Some states also charge separate title, registration, plate or inspection fees, and dealers add documentation fees; put the total in the fees field.
Why the loan term matters so much
Stretching a loan to 72 or 84 months lowers the payment but raises total interest, and lenders often charge higher rates on longer terms. Cars also lose value quickly in the first few years. With a long loan and a small down payment you can easily owe more than the car is worth for years, which becomes a problem if you need to sell it or it is totaled. The comparison table shows how much each extra year costs.
Negative equity
If you owe more on your current car than the dealer gives you for it, that shortfall is usually added to the new loan. You end up paying interest on a car you no longer own. When the calculator shows a negative equity warning, consider keeping the current car longer, paying the difference in cash, or choosing a cheaper vehicle.
Before you sign
- Get preapproved by a bank or credit union so you have a rate to compare with dealer financing.
- Negotiate the price of the car first, then the financing, then the trade-in, as separate deals.
- Read the buyer's order line by line for add-ons such as extended warranties, GAP coverage or paint protection that inflate the amount financed.
Frequently asked questions
What is the payment on a $35,000 car loan?
Financing $35,000 at 7% APR for 60 months costs about $693 a month, with roughly $6,580 of interest. Taxes, fees and your down payment change the amount financed.
Is sales tax included in a car loan?
It can be. Many buyers roll sales tax and fees into the loan, which raises the payment and the interest paid. Paying them upfront keeps the loan smaller.
Do I pay sales tax on the full price if I trade in a car?
In most states, no: tax is charged on the price minus the trade-in value. A few states tax the full purchase price. Check your state's motor vehicle agency.
Is a 72-month car loan a bad idea?
Not always, but it costs more interest and increases the risk of owing more than the car is worth. If the payment only works at 72 or 84 months, the car may be too expensive for the budget.